Monday, 4 June 2018

Wylfa: How the Tories are deliberately forgetting their nuclear lessons

For the sake of artificially massaging down the price paid for electricity from the proposed Wylfa nuclear plant the Government is about to commit the country to pay for billions of pounds of almost inevitable construction cost overruns. In doing so the Tories will be junking their opposition to doing such a thing. In 2010 The Conservative Party election manifesto stated that: ‘we agree
with the nuclear industry that taxpayer and consumer subsidies should not and
will not be provided – in particular there must be no public underwriting of
construction cost overruns’(1)

There was a very good reason for this manifesto commitment. None of the nuclear power plant currently operating in the UK were constructed according to their original cost estimates. They were built during the time when electricity was nationalised, and so the costs were spread around all consumers and there was limited transparency about the economics of building nuclear plants. The Tories decided that there should be no more wastage of public money on nuclear plant which soaked the public purse. They wanted competition in electricity generation.

According to the Electricity Market Reform law (initially proposed at the end of 2010) nuclear power should only have the same incentives as other low carbon fuels. But it has emerged that if this was done literally, there would not be any nuclear power stations built since various other low carbon options are much cheaper. But now that memories of the past problems with building nuclear power plant have receded from, or been airbrushed from, political memory, this principle has been gradually stripped away to return us to the past. The past of the nuclear blank cheque.

Nick Butler in the Financial Times has made some perceptive comments on this peculiar deal (2). He is one of the few who has done some serious thinking about how it can possibly be the case that the Wylfa project will be sold on a 'cheaper' price than Hinkley C (£92.50 per MWh in 2013 prices) despite the fact that the projected cost of building Wylfa is actually higher than Hinklrey C per GW of capacity (see my previous blog post). Prices around £75 per MWh have been kited as the suggested price tag for Wylfa for electricity consumers.

The price of the contract given to EDF to build Hinkley C was seen to be very large. So there was great political pressure to reduce this price. But the nature of nuclear power is that it is very expensive, so all the Government could do was to fake the price by giving 'below the counter' financial incentives. Of course this price can be reduced on paper if the state takes at least part of the risk and invests and lends money at cheap rates. But in real life not only is this mechanism not being made available to other low carbon fuels, but the taxpayer will end up paying a much higher price than advertised through a different route - when the time comes for the project investors (including the Government) to pay for the almost inevitable cost overruns.

The remarkable thing is that despite this effort at price fakery, the price agreed will still be a lot higher than that available for installing large amounts of onshore wind offshore wind and solar power.

The nuclear industry appears to have lobbied successfully for this return to the past, a past where nuclear power was financed by opaque means, and its expensive nature hidden by the fact that the state effectively offered the developers a blank cheque. Of course the British body politic will find out to its disgust that there will be billions of pounds paid out when the fund initially vested in the development is exhausted - thus revealing the grotesque fakery of the allegedly 'cheaper' price of the Wylfa project compared to Hinkley C. That won't happen for quite a few years since, no doubt, despite the usual wildly optimistic projections of delivery dates, the plant will not be constructed for a number of years yet. It will be long enough to ensure that the architects of this sorry deal are out of office and unavailable for comment from their retirement mansions.

About Me

Dr David Toke is Reader in Energy Politics in the Department of Politics and International Relations in the University of Aberdeen. You can see his profile at http://www.abdn.ac.uk/socsci/people/profiles/d.toke
He has been campaigning on energy issues for around 30 years, and in 1990 his book ‘Green Energy’ was an influential argument in the UK for a non-nuclear approach to dealing with global warming. He was a key player in the campaign to establish feed-in tariffs for small renewable projects in the UK, achieved in 2008. He has consistently argued that the UK's proposed nuclear power programme is not only uneconomic compared to renewable energy, but that it is undeliverable short of one or more governments signing what amounts to a 'blank cheque' to pay for the nuclear power plant. His latest book, published by Routledge is called 'Low Carbon Politics'. He has published many papers in leading political science journals on environmental, especially energy (and renewable energy) issues and he is also a frequent and well cited contributor to the journal 'Energy Policy' published by Elsevier. His twitter address is @DaveToke